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1-min read

Road Developers to Post 20% Topline Growth Till FY20: Report

The analysis is based on 66 construction companies which it rates and which account for over 80 per cent of the debt in the sector which has over 300 players.

PTI

Updated:July 24, 2018, 3:02 PM IST
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Road Developers to Post 20% Topline Growth Till FY20: Report
Representative Image. (Photo: NHAI)
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Mumbai: Road construction companies are set to clock a 20 per cent annual revenue growth till 2020, on the back of investments worth Rs 70,000 crore into HAM projects, including Rs 15,000 crore of equity, a report said.

"Buoyancy in growth will be driven by the government focus and spending on road construction," rating agency Crisil said in a report today.

The analysis is based on 66 construction companies which it rates and which account for over 80 per cent of the debt in the sector which has over 300 players.

Fiscal 2018 was particularly frenetic, with 17,000 km road projects, highest ever in a year, being awarded, while the pace of construction touched 27 km a day, which was twice that of fiscal 2014, it said, adding over 90 per cent of these contracts were based on HAM (hybrid annuity model) and EPC (engineering, procurement and construction).

The agency expects road construction to accelerate to 32 km a day by 2020 given NHAI's sharp focus on awarding projects under the Bharatmala scheme and over 50 per cent of these are expected to be under HAM.

"We expect topline growth for these companies to sustain at 20 per cent in this fiscal and the next two, backed by strong order-books," said Sachin Gupta, senior director, Crisil Ratings.

"Together, these companies are estimated to have an order book of Rs 1.3 trillion last fiscal, which, at over three times the revenue of these companies in fiscal 2018, provides high revenue visibility," he added.

According to him, the HAM projects being awarded over the next two years will need about Rs 70,000 crore of funding through an optimal mix of debt and equity. For this, contractors will have to raise an additional Rs 12,000-15,000 crore of equity.

According to Sushmita Majumdar, director, Crisil Ratings, to maintain order book growth and credit profiles, firms will need to raise funds either by selling HAM assets, or through the capital markets, or from private equity funds.

In the past two-three years, this sector has seen over Rs 12,000 crore being raised through divestment of road assets. But Majumdar noted debt raising may be more challenging given that 11 public sector banks are under prompt corrective action plan, and sectoral and borrower exposure limits are stringent.

| Edited by: Ahona Sengupta
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